Associated Press
U.S. Eyes Brazil's Ethanol Blueprint
By ALAN CLENDENNING 05.01.07, 12:20 PM ET

Brazil is infamous for its deep divide between rich and poor, but most drivers are equal at the pumps. Day laborers jammed in minivans and professionals motoring solo in air-conditioned comfort can buy gasoline - or pay about 40 percent less per tank for ethanol.

It's such a no-brainer that almost everyone fills up with the alcohol-based fuel, produced from endless fields of sugarcane that carpet Latin America's largest nation. And as long as international oil prices stay above $50 per barrel, ethanol will likely stay on top in Brazil's revolutionary fuel choice experiment.

Three years after American, German and Italian automakers unveiled "flex-fuel" cars in Brazil that run on gas, pure ethanol or any combination of the two, foreign investors are pouring in billions of dollars to start up ethanol operations in a nation some call "the Saudi Arabia of renewable fuel."

Countries like China, Italy and Japan plan to start mixing ethanol with gas and are securing supplies and know-how from the planet's most efficient producer and top exporter.

Brazil has boosted its ethanol production 40 percent over the last five years, from 3 billion gallons in 2002 to 4.2 billion gallons last year. During the same period, U.S. production rose 75 percent, from 2.8 billion gallons to 4.9 billion gallons, almost all of which went to the domestic U.S. market.

While Brazil is pledging to double production over the next decade, many experts agree American farmers can't meet the potential demand from President Bush's goal of consuming 35 billion gallons of alternative fuels every year by 2017, a fivefold increase over current requirements. That's a big reason why Bush inked a deal with Brazil in March to promote production elsewhere in Latin America and the Caribbean.

The boom is so hot that ethanol promoters even talk openly about how a post-Castro Cuba could become a key supplier for the United States, which produces ethanol from corn, a much less efficient raw material than sugarcane.

"Brazil has developed the model," said David Rothkopf, who recently prepared a 600-page report on ethanol and other biofuels for the Inter-American Development Bank. Brazilians "arrived at this by both innovation and accident, but they've really been leading and giving the world something to look at. Everybody is beating a path to Brazil to see what they're doing."

Brazil and Latin American nations have big advantages over the United States: Ample agricultural land and warm climates conducive to massive sugarcane plantations, with distilleries on site to process cane into fuel 24 hours after harvest.

Nations like Colombia, the Dominican Republic, El Salvador, Guatemala and Honduras are lining up for financing of sugarcane energy operations.

In Mexico, corn's birthplace, farmers are hoping to transform an industry now geared mostly toward domestic tortilla consumption. Some 21 million acres of corn fields are being expanded by 4.3 million acres this year alone.

Private investors are pushing for ethanol plants to be built across Mexico - new plants are planned in at least three states - and some lawmakers want to guarantee a bigger local market for farmers by requiring the state-owned oil monopoly Petroleos Mexicanos to oxygenate its gasoline with biofuels including corn.

This ethanol buzz also has unleashed a backlash from left-leaning groups, socialist Venezuelan President Hugo Chavez and Cuban leader Fidel Castro. They fear the poor will lose land and even starve as food production shifts to energy.

In Brazil, ethanol production is run almost exclusively by large corporations and well-heeled families, and there are no signs that the business model will change to include impoverished farm workers as stakeholders. Farm workers who cut cane with machetes for rich landowners could end up worse off if the harvest becomes mechanized.

"Where are the poor countries of the Third World going to get the minimum resources to survive?" Castro asked in an article published in early April. "I'm not exaggerating or using unmeasured words. I am sticking to the facts."

Chavez also came out against the U.S.-Brazil ethanol accord, saying American ethanol takes "corn away from people and the food chain to feed automobiles - a terrible thing."

In Brazil, there's no denying that ethanol is king, available to drivers across the nation and at every gas station in Sao Paulo, South America's largest city. Eight of 10 new Brazilian cars are flex-fuel, and most drivers fill up with ethanol at a third to half the price of gas.

Ethanol came courtesy of a 1970s decision by Brazil's former military dictators to subsidize production and require distribution at the pumps, giving Brazil the built-in supply and distribution systems other countries lack.

Another barrier to ethanol for U.S. drivers is the 54 cents-per-gallon tariff the U.S. levies on Brazilian ethanol imports - a tax President Luiz Inacio Lula da Silva is lobbying hard to have lifted.

Bush's brother Jeb, the former Florida governor, said he believes the U.S. tariff will be reduced or eliminated within several years despite stiff opposition from American farmers. Now a co-director of the Interamerican Ethanol Commission lobbying for increased production across Latin America, Jeb Bush said the tariff "has to be phased out" to satisfy the need for ethanol imports.

But even if Congress slashes the tariff, U.S. demand can't be met without ethanol imports from other Latin American nations that once produced most of the world's sugar.

Cuba, settled by Spaniards to feed colonial sugar demand, would be a logical choice given its proximity to Florida, and because the fuel-hungry state lies far away from America's ethanol producing heartland.

"If there was a free Cuba, it could be a great exporter, and it is discussed," said Brian Dean, the commission's executive director.